Passion
As a hobby, I enjoy cooking (as well as eating!), so I spend a lot of time in my kitchen when not contemplating the future of the appraisal industry.  As a result of my love of all things gastronomic, I do my best to seek out renowned dining establishments during my travels.

Recently, I was presented with an opportunity to dine at Incanto, the renowned and award-winning restaurant helmed by Chris Cosentino (Top Chef Masters winner), in San Francisco, Calif.  As expected, the food was phenomenal and the hospitality was noteworthy.  Sitting at the Chef’s counter, I had a view of the organized chaos that makes top-tier restaurants so exciting.  Every move the kitchen staff made was purposeful, with little observable wasted effort.  Though it may sound clichéd, it was best described as poetry in motion.

The most unexpected aspect of this memorable dining experience was the presence of the restaurant’s Chef Cosentino.  Not only was Chef Cosentino present, but was actually cooking!  You may ask, “Is it so inconceivable that a renowned chef would actually be found in their kitchen on a Tuesday night?”, and my answer would be a resounding “Yes!” 

At the end of our meal, I was lucky enough to chat with the Chef for a bit. After expressing my gratitude for a memorable meal, I explained that it was an unexpected surprise to see a chef of his stature working the line, when he could easily delegate the responsibilities of his restaurant to one of his many talented cooks.  His response to my statement was so refreshing, I have to recount it in this article, because it exemplifies the attitude that each and every appraiser should embody.  He said, and I’m paraphrasing, “I need to be here, to be involved in order to ensure the restaurant continues moving in the direction I want it to. I usually get to the farmers market around eight in the morning, and I’m at the restaurant by 11 [am].  Then I’m in the kitchen throughout service.  This is my passion.  This is where I’m supposed to be.”

This culinary legend realizes the importance of participating in the process day-in and day-out.  He’s driven by his passion for his industry, and obviously realizes that in order to achieve one’s goals and objectives, you need to show up each and every day.  The same passion and dedication should be commonplace in the appraisal industry.  We are all responsible for the direction our industry takes.  We ALL must exude passion when proselytizing on behalf of our industry.  If we’re absentee practitioners, we shouldn’t show surprise when the profession devolves into a group of glorified automatons, whose sole purpose is to verify that the home does in fact exist (think 2075s all day, every day).

Fuzzy Math
I remember someone coining the term “fuzzy math.”  The first time I heard it, I thought to myself that it must have emanated from the mind of a residential real estate appraiser.  If we’re going to survive, and eventually thrive again, we need to eliminate “fuzzy math” from the vernacular when describing appraisal practice.

My peers and I see examples of “fuzzy math” more often than we’d like to admit.  The use of SWAG (a.k.a. Scientific Wild A*@ Guess) logic to arrive at an adjustment for the difference between a two and three car garage isn’t going to securitize the residential appraiser’s future.  This is a critical failure in today’s appraisal practice that can be solved with relative ease.  Data being as plentiful as it is, why don’t we have simple – and in some cases, sophisticated – regression analysis as a systemic part of our appraisal production process?  If the average E*TRADE® user can search through a plethora of analytics tools to assist them in making an investment decision, shouldn’t appraisers have similar information available to them?

Should consumers expect to see parity in appraisal findings, independent of the appraiser engaged to complete the assignment?  Are objective and replicable development and reporting standards needed to survive the forthcoming onslaught of more sophisticated automated valuation models?  For all of those playing along at home, I think the answer is self-evident.

Wish List
We need better analytics included in standard appraisal forms if we’re ever going to close the gap between supposition and objective findings in the residential appraisal world. I’d bet that users of appraisal reports would like to see defined tolerances for line-item adjustments. I’m not a tech wiz by any stretch of the imagination, but I find it hard to believe that we can’t identify appropriate adjustments, within a range of tolerances, for almost every aspect of comparison if using the right regression formula.

Appraisers need to realize technological advancements are unavoidable, and could in fact benefit our industry if their development is controlled by appraisal professionals, and their deployment is appraiser-centric.  Technology should be considered a tool in the appraiser’s arsenal, not a cost-cutting measure that will eliminate the need for an appraiser’s market knowledge. So who’s going to make it happen?  Who’s going to demand more from our technology partners?  I ask that everyone reading this article make it their mission to push this agenda, because without it, our fate may be decided for us by those who hope to see appraisers supplanted solely by technology.  If WE don’t retain control of our destiny, WHO will?

Irreconcilable Differences
The first thing we need to solve for are inconsistencies in appraisal findings from appraiser to appraiser.  I’d have retired many moons ago if I had a nickel for every time I looked at two appraisals completed on the same subject property, with the same effective date, and using the same dataset, only to find reconciled values so far apart that you could pull a Carnival® cruise ship through the difference.  How do we bridge the gap between subjective observations and objective - arithmetically derived - opinions of value?  We start by defining the contributory values associated with each aspect of comparison, including a hierarchy of adjustments based on the nature of the subject’s market area.  For instance, in a market where value is driven primarily by a subject property’s external site influences, like a water attribute, it’s not difficult to ascertain adjustments. This relatively simple equation, with most appraisers being well versed in how to use matched pairs to conclude a dollar-per-front-foot adjustment for any water frontage on a value contributing water attribute, is easily applied when the impact of a single influence on value is so pronounced. 

However, this task becomes increasingly more difficult as you run down the list of potential adjustments because the impact of each dissimilarity becomes less distinct between subject and comparable.  In these less obvious scenarios, doesn’t linear regression sound like a great option?  But how many appraisers are going to take the time to develop their own proprietary formulas in an Excel spreadsheet?  I’d guess fewer than we’d need to positively impact the consumer’s confidence in our profession.

So we’ve determined that in today’s environment of shorter turn-times, anemic fees and increasing demands placed on appraisers, future success will require the development of more sophisticated tools to meet the needs of our intended users.  Today we need to fully understand and quantify the perceived market reaction to differences between subject and comparable in real-time, without having to spend hours on end sorting through piles of data.  This is the only way we can ensure our value-contribution to the mortgage lending process isn’t overshadowed by the cost savings of using automation alone to solve for the industries collateral valuation needs.

Problem Solved?
Unfortunately, this is only the starting point if meaningful change is our objective.  In the subsequent installments to this series, we’ll discuss how to attract the next generation of appraisal professionals, and how they’ll be trained, educated and certified.  We’ll also delve into automated population of appraisal form data-fields through integrations with public records and MLS repositories.  For now, I leave you with this... Ask yourself what you can do to benefit the appraisal industry, and act upon your answer!

About the Author
Jordan Petkovski is the VP/Chief Appraiser at Title Source.